Elite tensions with democracy

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Chris Hayes has been the Editor at Large for The Nation magazine for a few years now, among numerous other gigs, and now has his own show on MSNBC on Saturday and Sunday mornings.  It’s a brilliant re-envisioning of the stale weekly public affairs shows dominated by the same rotating cast of characters, in part because of the sheer diversity of the guests Hayes features.  Sunday’s program had 3 women at the table along with Hayes and another male guest, for example.  Try finding that sort of gender-ratio on “Meet the Nation News Sunday.”  Beyond the guests, however, the show strives to offer a diversity of opinions on a multitude of topical stories, and to dig into the details of what’s happening and why in a way the typical news program is simply unable to.  As a perfect example and segway into my point, in the video above, Hayes lays out an argument as to why the Supercommittee’s failure this past week is in fact a good thing for America; his sentiments are ones that I have been mulling over recently myself.  Do watch it.

Hayes mentions the recent ascensions to the top leadership posts of two technocrats in Greece and Italy, noting that their jobs, their mandates upon entering office, are to push through deeply unpopular austerity packages over the will of the majority of their supposed constituents. 

Technocracy has suddenly become all the rage amidst the debt crisis of the eurozone. In Greece, prime minister George Papandreou was ousted in favour of the unelected former central banker Lucas Papademos, after he had the effrontery to call the referendum that never was. In Italy, Mario Monti, the unelected former EU commissioner, has anointed a cabinet of academics, bankers and an admiral, without a single representative of Italy’s political parties. This novel step is designed to reassure international bond markets, which have recently pushed Italy’s yields to perilous levels. (emphasis added)

Key takeaway: the political process is anathema to international finance. 

Consider a few short weeks ago when then-Greek Prime Minister George Papandreou had (shockingly!) called for a national referendum to be held on the terms of an European Union/International Monetary Fund bailout plan that would have included harsh austerity measures to be imposed on the Greek people.  The markets crashed, and the two biggest European economies’ leaders reacted with scorn:

At a bruising meeting in Cannes on Wednesday night, French President Nicolas Sarkozy and German Chancellor Angela Merkel warned [Papandreou] that Athens would not receive a cent more in aid until it met its commitments to the euro zone.

Greece was due to get a vital 8 billion euro installment this month and says it will run out of money in mid-December if it does not get the loan.

Despite the turmoil in Athens and uncertainty over the euro zone, European stock markets and the euro rallied in volatile trading as the likelihood grew that Greece would not hold the highly risky referendum.

Note that opening the decision-making process up to those who will bear the brunt of any economic decisions made by the powers-that-be, the citizenry, is tantamount, in this calculation, to introducing high risk into the equation.  The cold logic of finance, of interest rates and debt-to-GDP ratios, does not comport well with the warm inefficient fuzziness of the electorate, with their myriad voices and parochial/familial concerns.  How are the financiers supposed to get their bailouts when the poor rubes paying for it demand something more than the simple extraction of wealth from their country? 

The power relationships on evidence in the foregoing snippet of the Greek referendum situation are revealing: the larger “creditor” economies of France and Germany here acted as front-line enforcers with the wayward Greek leader Papandreou; the EU, a supra-national body of European nations acted in concert with the IMF, another supra-national body representing the strictly monetary interests of client nations, to craft a bailout package for Greece that brings great pain to the Greek people; meanwhile, the Greek people are demonstrating and rioting in the streets by the tens or hundreds of thousands to show their disapproval, and yet, they are pawns in the grand scheme.  What are the Greek people supposed to do when it seems the entire world (particularly the sanctimonious Germans) is blaming them as a people for being profligate – where are they to turn to voice their opinions democratically when the one opportunity they would have had to do so is brutally snatched away from them by shadowy international forces?

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This sordid and ongoing tale of crisis in Europe reveals the flipside to the ethos of globalization that has dominated international politics since the early days of the “Washington Consensus”.  In order to govern worldwide flows of goods, services and capital, world-bestriding structures of governance must be created.  To the extent that those structures are endowed with the authority to act in crises, those actions are by nature going to be out of the direct control of the citizenry of the nations affected, thus denying the citizens of the world recourse to shape the responses of those supra-national institutions.  The structures of these institutions ensure that their responsiveness will be primarily directed towards the largest stakeholders – the largest economies and the largest private financial institutions – thus making the decisions made representative of the policy prescriptions of an even more rarefied status of elites.  Power is thus concentrated further, with the results trickling down upon the rest of us.  And again, we have effectively no recourse to change much at all. 

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The notion that centralization=efficiency, related to the economic concept of “economies of scale,” has reigned supreme in much of the modern industrialized world.  We see these tenets manifested in the superstores we shop at, the industrially-produced agriculture we purchase, and the (public) school systems we send our children to be educated at, for just a few examples.  Our governmental policies, and indeed, the growth of the federal government itself in the past century, has reflected the notion that centralized governance is necessarily better for all due to greater standardization of outputs and efficiencies gained.

And yet, centralization creates with it a certain culture as well, an elite culture where those well-versed in the human power relationships and bureaucratic operations of the institutions influence the direction of decision-making to their own ends.  Centralization creates, not only an institution’s set of substantive actions with which it operates in society, but an entire class of administrators devoted to the upkeep and promulgation of the institution itself through budgeting, revenue collection, inter-institutional lobbying, and so forth.  Institutions, first and foremost, desire to keep existing, thus creating a tension with their public service functions.

I would argue that much of the Occupy-inspired debate currently ongoing in our society is at least in part related to the discussion of how much the public interest is served by various institutions of government versus how much those institutions merely serve as vehicles for particular interests to enact their wills.  The public wants accountability for the financial sector, but the relevant regulators have shown themselves to be rather more beholden to the interests of Big Finance than the public interest (see my posts on housing for more on that).  The public wants more investment in clean energy, yet there is an institutional structure within our government dedicated to fossil fuels, from the military fighting wars that just happen to be in oil-rich regions, to the massive tax breaks and other indirect subsidies for fossil fuels baked into our tax code.  How do we get the changes the populace wants enacted into law?  We have to rely on elected representatives with a slew of other institutional and professional competing interests to act on our behalf – not an easy thing to do, apparently!

The clear answer to these problems appears to be decentralization – a reduction of the scale of decision-making to a more manageable, democratic, and community-oriented size.  The General Assemblies occurring at the Occupy encampments around the country have represented that trend most vividly, as Chris Hayes highlighted in the clip above.  While some efficiency may certainly be lost along the way, democracy and true representation can be gained, ensuring that the rule of an unaccountable elite, such as we are witnessing today, is significantly more difficult to achieve.  Consider the supra-national institutions I’ve noted above – they are, if anything, abstractions of representative government; meta-representative democracies, if you will.  Who are their constituents but other client states and their assorted national economic interests?  Who are their leaders but those who have been most agreeable to said client states and economic interests?  How have you been personally helped by the IMF lately?

I hope to pick up further threads of this discussion in a future post, as there’s a lot to the topic of decentralization to discuss.  As always, your comments are welcomed and appreciated in the comments area below.

Even the Super Committee gets a bailout

A headline from today’s Los Angeles Times:

Congressional leaders jump in to save 'super committee'

In an effort to end the deadlock on deficit reductions, party leaders, especially on the Republican side, are meeting behind closed doors with members of the panel.

Okay, so perhaps we’re talking more about a legislative bailout of sorts, but is it not a perfect microcosm of the depravity of American politics that a panel convened due to the failure in leadership on the part of our “leaders” to figure out “responsible” ways to rein in fiscal deficits over the summer (“responsible” in Washington-speak meaning “measures that maximally shift any deficit-reduction burden onto the backs of the coddled lower and middle classes so as to spare the overburdened upper classes from having to pony up anything further in the way of taxes”) and which is now faced with “failure” (here meaning an automatic triggering of across-the-board cuts to the sacred cows of both left and right, in this case the entitlement and defense spending, respectively) due to fundamental disagreements on how much and how best to stick it to the lower and middle classes, is now being furiously “saved” by leadership so as to continue its “noble” work of further impoverishing millions who are already struggling.  Note the journalist’s framing of the issue at stake here:

Failure to reach a compromise by Thanksgiving to slash $1.5 trillion from the nation's deficits over the next decade could send shock waves through the fragile economy, as happened during the summer debt ceiling standoff. Failure would also trigger automatic budget cuts that both parties want to avoid. (emphasis added)

The implicit assumption in the highlighted sentence is that the economy could be roiled by the “failure” of the Super Committee to reach agreement on deficit reduction measures other than those mandated in the trigger agreement.  To be more specific, in this framing, the markets will react negatively if deficit reduction agreements of sufficient size and scope are not reached by the Super Committee.  Indeed, I agree with this analysis, but for reasons other than those the journalist implies.

The markets may well face turmoil whatever the outcome of the Super Committee, because whether the Super Committee is “successful” or not, the vast majority of Americans lose in some way or another, facing elite-imposed austerity for what is a manifestly elite-generated economic crisis.  Austerity, as has been witnessed in Europe the past few years, may work to reduce budget deficits in the short run, but in the longer term, as government spending is reduced, that compounds with reduced recessionary spending by consumers as well as businesses, thus leading to less consumer demand, hence more layoffs, hence lower tax revenues, which leads to calls for further austerity…the cycle is virtually endless.  You then may get calls for a government to sell off or privatize public assets in order to create revenue, which ultimately reduces public wealth and resources in the long run.  Counter-cyclical government spending is designed to stimulate demand in the short-term, in order to create positive spillover effects for the private sector and to avoid demand slackening to the point that you have a wave of business closures with the attendant layoffs and structural deformations of local/regional/national economies.  The counter-cyclical government spending notion is the linchpin of Keynesian economic theory, and despite their professed love of free markets, many Republicans tend to like the Keynesian view of government spending policies as a remedy for a sick economy, at least when it comes to defense spending 

Representative Chris Van Hollen, Democrat of Maryland and a member of the panel, said the attempt to undo the triggers “reflects a total lack of seriousness.” Adding that such efforts would not be successful, he said they were “the result of people trying to escape the fundamental choices before us, and one of those choices is whether or not we are willing to end special interest tax breaks to pay for defense.” The White House is also highly unlikely to approve such actions. The president is averse to the military cuts, but saw the threat of them as a way to pressure Republicans to reach a deal. “There is more fear this time,” Representative Mo Brooks, Republican of Alabama, said about the anxiety being expressed by military contractors in his district. Mr. Brooks said he voted against the debt-ceiling legislation because of the possibility of deep Pentagon cuts.

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Republicans have expressed more alarm about possible across-the-board cuts in Pentagon spending than Democrats have voiced about cuts in domestic programs that would also occur. Many safety-net programs for low-income people, like Medicaid and food stamps, would be exempt from automatic cuts. And Medicare payments to health care providers could not be reduced by more than 2 percent.  (emphases added)

Yes yes, make sure to protect the all-important “job creating,” “100% private-sector” defense contractors, and pay no attention to the mewling from the general public about the austerity they must contend with.  We must ensure the revenue stream for government to the contractors is uninterrupted, lest their fraudulent schemes for bilking taxpayers out of their hard-earned money are subjected to closer public scrutiny!

At least 91 contractors holding contracts worth $270 billion were the subjects of civil fraud judgments -- and in some cases criminal fraud convictions as well, many of which resulted in fines, suspensions or debarments. Even so, Defense Department contracting officers still assigned $4.9 billion worth of work with these companies after the fraud was uncovered, the report said.

The contractors identified in the report include such blue-chip entities as Boeing, Lockheed Martin, General Dynamics, Pratt & Whitney, IBM and even the Yale medical school.

All this to say that the markets will likely react poorly to any austerity measures in the US beyond what has already been enacted, because corporations and the markets recognize that consumer demand is the weak link in the American economy at this time, not the impending threat of governmental default due to an overly burdensome public debt load (unless it is a default threat created out of Congressional dysfunction, as it was this past summer).

“You’ve got to stimulate demand growth,” said Indra Nooyi, CEO of Purchase, New York-based PepsiCo, in an interview. “Until we stimulate primary consumption, the cash will continue to sit on the sidelines.”

The companies’ warnings follow a cut to the U.S. credit rating on Aug. 5 and a two-week rout in global equity markets as investors dumped stocks in favor of gold and Treasuries. With three European countries having required bailouts, concern over weakening demand and rising unemployment is spreading. A report yesterday said confidence among small businesses fell in July for the fifth consecutive month as the sales outlook dimmed.

The quotations above are from August, but we find ourselves in virtually the same situation today (check the report headlines for the past number of months) with weak consumer confidence and corollary spending levels. 

So here we witness a massive effort by our top elected officials to save a budget-cutting process that will likely impoverish our nation and citizens still further in order to spare from cuts one of the more fraudulent, yet highly-entrenched sectors of the national economy, while managing to simultaneously increase future budget deficits due to reduced tax revenues (driven by weak consumer spending, once again).  These are the priorities and policy solutions of our elected officials these days.  Tell me that isn’t a chilling thought.  Once again, on whose behalf do they truly work?